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The term "greenback" is a slang word for the United States Federal Reserve Note, commonly referred to as the US Dollar (USD). Greenbacks also have a historical connotation, however, referring to the debate over economic policy throughout the Civil War Era. The name comes from the green color of the ink used on Demand Notes, which were issued by the US government from late 1861 to early 1862.
Origins of the US Dollar
During the US Civil War, the debate over the greenback and the gold standard came to a head when the United States government struggled to pay debts acquired from union military operations. At the time, Demand Notes were supposed to be redeemable for gold coin "on demand," which was a problem for the government.
The Legal Tender Act was passed on 25 February 1862, which permitted the Secretary of the Treasury to issue Legal Tender Notes, which looked very similar to the Demand Notes they replaced, only they were not redeemable for coin. A few days later, the United States Treasury authorized the issue of $150 million USD worth of paper Legal Tender Notes, which paved the way for modern day currency. Just a few months later, on 29 August 1862, the first modern day currency was produced when the Chief of the Federal Bureau and five clerks printed paper notes in the basement of the United States Treasury Building.
Banks and bankers originally scorned the new greenbacks. At the time of the initial circulation, people used both gold dollars and greenback dollars. By 1867, over $350 million USD worth of greenbacks were making their rounds through the United States. Some confusion ensued as the coin-backed Demand Notes clashed with the new greenbacks on the national market.
Legal Tender "greenbacks" were not backed by coin until Republican president Rutherford B. Hayes backed the 1875 Specie Resumption Act in 1875. After the Civil War, creditors were still clamoring for coin-backed currency, and the United States returned to the gold standard in 1879. Some Americans were furious with the decision, and they formed the Greenback Labor Party, which called for a return to the issue of greenbacks and the regulation of certain corporations such as privately owned banks whom they feared would redefine the value of currency.
Federal Reserve Notes
The history of the greenback came full circle when Republican president Richard Nixon abandoned the gold standard in 1971 by preventing foreign countries from trading gold for United States dollars. At this time, Legal Tender Notes were replaced by Federal Reserve Notes, or what is now used as paper money. This paper money continued the tradition of using green inks, thus retaining the nickname "greenback." Federal Reserve Notes went through a redesign beginning in 2003, and as a result only the $20 bill still uses green as its main color.
Frequently Asked Questions
What is a Greenback and why is it historically significant?
A Greenback refers to paper currency issued by the United States during the Civil War. It was significant because it represented the first time the federal government issued paper money that was not backed by gold or silver but by the credit of the United States. This move helped finance the Union war effort and laid the groundwork for a national currency system. The term "Greenback" comes from the green ink used on the back of the bills.
How did Greenbacks affect the U.S. economy during the Civil War?
Greenbacks had a profound impact on the U.S. economy during the Civil War. They provided the necessary funds for the Union's military expenses when traditional revenue sources were insufficient. However, because they were not backed by gold or silver, their value fluctuated greatly, leading to inflation. At one point, according to the Federal Reserve History, the Greenbacks depreciated so much that they were worth only 39 cents in gold.
Are Greenbacks still in circulation today?
No, Greenbacks are not in circulation today. They were gradually withdrawn from circulation as the U.S. government began to redeem them for gold starting in 1879. The term "Greenback" is now often used colloquially to refer to any U.S. paper currency, but the actual Greenback notes are no longer used and are considered collectors' items.
What was the legal tender status of Greenbacks?
Greenbacks were designated as legal tender by the Legal Tender Act of 1862, which meant they had to be accepted for all taxes, debts, and other monetary obligations. This was a controversial move at the time, as it forced creditors to accept paper money that might be worth less than its face value in gold or silver. The Supreme Court initially ruled against the Act but later reversed its decision, upholding the legality of Greenbacks as tender.
How did Greenbacks transition into the modern U.S. currency system?
After the Civil War, the U.S. moved towards a more stable currency system. The Resumption Act of 1875 set the stage for Greenbacks to be redeemed for gold, which began in 1879, effectively ending the era of Greenbacks. Over time, the U.S. adopted a gold standard, and later, the Federal Reserve was established in 1913 to regulate the money supply. Today's currency, while still called "greenbacks" informally, is actually Federal Reserve Notes, which are backed by the full faith and credit of the U.S. government.